Critiques of Spending Plan Retrace Old Debate

Useful, but flawed and probably not enough: that, in general terms, was the verdict pronounced on the $150 billion emergency spending plan agreed to by the White House and Congressional leaders on Thursday in a bid to stimulate the suddenly sputtering economy.

Most economists praised the deal as a necessary effort that by increasing the public debt to put cash swiftly into the hands of ordinary consumers, could limit the severity and duration of a recession and very likely spare some jobs.

Nonetheless, economists of nearly every ideological stripe also found substantial fault with the plan: liberals, because it does not expand unemployment benefits or food stamps; conservatives, because it fails to lock in President Bush’s tax cuts beyond their planned expiration in 2010.

Few economists thought the stimulus plan alone would be adequate to keep the economy clear of a recession. Yet many portrayed the package as a significant psychological boost for anxious markets around the world, a sign that the Washington overseers of the American economy are seriously engaged in finding a fix.

“It is a much needed and very constructive step,” said Lawrence H. Summers, the Treasury secretary in the Clinton administration who has recently called for specific and temporary tax cuts. “It will provide some confidence. But policy-making will need to be on standby, because more may be needed.”

The plan was a result of intensive horse-trading between Democrats and the Bush administration, bringing to the fore fundamentally competing notions about economic policy. But the basic goal was shared and simple — keeping the economy growing at a time when millions of Americans are losing confidence and cutting back in the face of falling home prices, mounting debt and rising joblessness.

At the center of the plan is an effort to spur consumers, whose spending makes up 70 percent of the American economy. The plan leans heavily on cash payments for all but the wealthiest Americans, assuming that money put in pockets will swiftly find its way into cash registers, generating jobs at restaurants, retail outlets and banks and on the factory floor.

The most fervent proponents of free markets criticized the plan as a damaging intrusion by government that incurs public debt for dubious subsidies.

“The economy is working these things out,” said David R. Henderson, a libertarian economist at the Hoover Institution at Stanford. “We’ve got the housing crisis and the subprime, and all these things take a while to settle. The government just doesn’t have the discipline to kind of let things work out.”

But in recent weeks, mainstream economists from across the political spectrum have come to the conclusion that growing economic turmoil demands that significant public money be poured into limiting the pain of a downturn.

Still, the way the deal was cut left many bemoaning the compromises.

Democrats had sought the extension of unemployment benefits and an increase in food stamps. Research shows these measures deliver the largest increases in spending, because poor people are prone to buy what they need when given the chance. Wealthy people, by contrast, tend to save more when taxes are cut.

The Bush administration insisted on rebates alone, and House Democrats relented in exchange for adding payments to people who do not pay income taxes.

“They gave up pieces of the package that were more effective,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington, who blamed the Bush administration for blocking the expansion of benefits. “It’s a political choice, and a bad one. It’s an ideology that says, ‘I can get a lot more credit for tax cuts than I can for expanding unemployment insurance.’ ”

Unemployment among blacks and Hispanics has been rising at triple the rate for whites, while the time it takes for people to find new jobs has been lengthening, according to government data. Some experts argue that by failing to expand unemployment benefits, the plan leaves minority groups most vulnerable to a recession.

“It’s way inadequate,” said William Spriggs, an economist at Howard University in Washington. “It doesn’t fix the problems we have with the safety net.”

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Seven years ago, the last time the government handed out rebate checks in a downturn, recipients spent two-thirds of the money within six months, according to Mark Zandi, chief economist at Moody’s Economy.com.

This time, unlike the last, some of the money is going to people who do not pay taxes, so an even bigger surge of spending is likely, he said.

“This is a very positive, big step,” Mr. Zandi said.

But much has changed in recent years. Given that a lot of Americans are so deeply in debt, some economists said, many may use the money to pay off bills rather than to buy new goods and services. “People are already behind on mortgages and credit cards,” said Gary A. Hoover, an economist at the University of Alabama.

Another big factor is that an increasing share of goods sold in the United States are made overseas. During the 2001 recession, 18 percent of what Americans spent on food and manufactured goods was imported, according to the Commerce Department. By 2006, the share had risen to 21 percent.

“A great deal of any stimulus is going to be sent overseas,” said Alan Tonelson, a research fellow at the United States Business and Industry Council, a trade association of small manufacturers that lobbies to limit imports.

Other analysts argued that the best way to ensure that dollars do not leak abroad would be to spend them on state-financed public works projects employing large numbers of people — repairing levees and dams, fixing bridges or building schools.

The money could also be directed to states that face shrinking tax revenues as the economy contracts. An infusion of federal money would allow them to sustain construction programs and social services for the poor.

“The first people to go in this squeeze are social workers, and that should not be,” said Paul A. David, an economic historian at Stanford. “When people are short of money or unemployed, they have trouble at home and need help.”

Debate over the stimulus plan also tripped one of the key fault lines in American economic policy — argument about the merits of tax breaks.

The Bush administration championed tax cuts for businesses, arguing that this would coax companies to expand. But many economists question that assumption, asserting that if consumers lack money to spend, then businesses will stand pat or even cut back and fire people, whatever the tax rate.

“Breaks in taxes for corporations are unlikely to make a difference,” said Desmond Lachman, an economist at the American Enterprise Institute. “There’s waste in it.”

But conservatives who expound the supply-side view expressed disappointment with the plan because it focused on temporary tax cuts rather than improving economic incentives through lower rates, which tend to benefit the wealthy the most.

Over the last quarter-century, Republicans have generally argued that the economy grows when money is freed up through lower taxes for all, businesses especially. Some argue that the prospect that a new administration will take office next year and increase taxes is damping investment now, stifling the creation of new jobs.

“One of the factors that’s currently souring this economy is the prospect that taxes are going to be rising in the future,” said William W. Beach, a senior fellow at the conservative Heritage Foundation in Washington. “I’m concerned about the bang for the buck.”

Mark Landler contributed reporting from Davos, Switzerland.

A version of this news analysis appears in print on , on Page A20 of the New York edition with the headline: Economists’ Critiques Of Emergency Effort Retrace Old Debates. Order Reprints|Today's Paper|Subscribe